Singtel - OCBC Investment 2016-02-11: Fair value under review

Singtel - OCBC Investment 2016-02-11: Fair value under review SINGTEL Singapore Telecommunications Z74.SI 

Singtel: Fair value under review 

 3Q revenue of S$4400m likely 
 Optus could continue to outperform 
 Likely least affected by 4th telco 

3QFY16 results due tomorrow 

  • Singtel is due to post its 3QFY16 results tomorrow before market opens. 
  • Based on its previous guidance, management expects group revenue to grow by mid single digit level for FY16; EBITDA to increase by low single digit level. As such, we are expecting 3QFY16 revenue to come in around S$4400m, supported by stillstrong handset sales (but potentially mitigated by the weaker AUD against the SGD) and underlying net profit of S$945m. 

Optus may remain bright spot 

  • Just before the Chinese New Year break, Singtel’s share price surged over 6%, likely lifted by news that its Australian unit has acquired licenses that will allow Optus to expand its 4G network in the country. 
  • Notwithstanding the weaker AUD, we believe that Optus could be the bright spot in the coming year as it continues to improve its business efficiency; management has also maintained its previous guidance of low single digit growth for Optus’ mobile services revenue. 

Keeping our BUY rating for now… 

  • In terms of near-term risk, we believe that Singtel is probably the least affected by the potential entrance of a fourth telco in Singapore, given its dominant position in the post-paid market (48% share) and also pre-paid segment (53% share). 
  • We further believe that it has more business users among its post-paid subscribers who tend to be less price sensitive and would value quality of service more. 
  • Last but not least, Singtel has started to bundle Netflix into its Pay TV offering, suggesting that it views Netflix’s services as more complementary than competitive. Hence, we are keeping our BUY call for now. 

But fair value is under review 

  • However, we are placing our SOTP-based fair value of S$4.17 under review; this mainly due to the recent sharp falls in the share price of its listed associates, especially SingPost. 
  • Nevertheless, we do not expect this to affect the dividends from its regional associates. 

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-02-11
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 99999 Same 4.17